Consultation co-operation and carrots - what do the PRAs new proposals mean for enforcement

Last week, the PRA announced plans to speed up its enforcement processes, including an eye-catching proposal to offer bigger discounts on financial penalties of up to 50% for those who admit culpability early on in an investigation.

The Early Account Scheme

The consultation paper sets out a number of proposed reforms to the PRA’s enforcement policies, including its approach to calculating financial penalties when it takes action.

The most striking proposal is the introduction of the 'Early Account Scheme' (or EAS). The purpose of the EAS is to incentivise early cooperation. The scheme would be available at the request of the subject of the investigation (at the PRA's discretion).

Under an EAS, the firm/individual under investigation would be compelled by the PRA to provide a detailed factual account of the matters under investigation together with all relevant materials/evidence at the initial stage of an investigation.

The carrot for banks/insurers/individuals participating in an EAS is the potential for an enhanced early settlement discount of up to 50% where early admissions are made – this is a significant increase on the current maximum settlement discount of 30%.

The benefits to the PRA are clear – in particular, it will achieve efficiency and free up enforcement resource by effectively outsourcing much of the initial fact finding stage of investigations to the subject of the investigation. It will also likely expedite the publication of enforcement outcomes where a subject has admitted regulatory breaches early in the process.

What does this mean for FCA investigations?

One of the key enforcement challenges that the FCA currently faces is how it can manage its caseload more effectively in order to bring down the length of time it takes to conclude investigations.

Whilst any changes made following this consultation will only apply to PRA enforcement actions, we expect that the FCA's new enforcement directors will be looking at these proposals, including the EAS 50% discount, very closely.

Only time will tell whether they follow suit by also seeking to offer higher settlement discounts for early cooperation/admissions.

Next steps

The consultation period for the new proposals closes on 4 August 2023 and any changes made following the consultation will only apply to misconduct arising following the implementation of the new policy.

You can read the full consultation paper here.

Authors: Adam Jamieson and Andrew Sims